Psychological research shows that people's blind self-confidence, conservatism, loss aversion and other psychological characteristics directly affect people's investment behavior. Overconfidence comes from optimism. The following is a model essay on related papers that I recommend to you, hoping to help you. More exciting content can be found at www.oh 100.com/bylw.
Psychology has found that people in groups are easily influenced by group emotions, but they tend to keep their behavior consistent with the group, or even give up their preferences and habits to some extent and ignore the information they can get. These behaviors of individuals are often unbelievable. Some typical social psychological phenomena include cognitive system deviation, information flow and conformity behavior.
Keywords: group, group mood, influence
Cognitive system deviation means that social system factors have great influence on people's beliefs and unique decisions. People with different backgrounds, such as geographical differences, cultural differences and income differences, may form some groups with different beliefs, and they have significant intra-group homogeneity and inter-group differences. In other words, the whole system factors will affect people's behavior, and the factors of their own groups will also affect people's behavior.
Information flow means that people will refer to other people's choices in the decision-making process and ignore the information you have or can use. Information flow theory describes a large number of communication and evaluation information loss phenomena. Through psychological experiments, it is confirmed that the most common collision in people's mutual communication is * * * enjoying cognition, while private information is rarely exchanged. Schiller believes that this is because limited attention can only focus on hot information, forming similar thinking activities, and people's communication and media propaganda further strengthen these beliefs. Kuran and Sunstein described the formation process of this collective belief, and the superposition effect of streaming media can be obtained. Bikhchandani, Hirshleifer and Welch structure form an information flow model, which explains why little information can lead to social trends or fashions.
Herd behavior is a very common phenomenon in group psychology research. Information flow recognizes prejudice from a cognitive perspective, while conformity behavior is viewed from an emotional perspective. In groups, people imitate each other and influence each other. At this time, the cyclic stimulation reaction in the group will gradually drive people's emotional experience and make people gradually lose their rational judgment. This kind of behavior is usually difficult to predict and control, and it is potentially destructive to society. The mechanism of this effect usually has two paradigms: one is emotional contagion. When people's cognition and attitude are highly consistent, emotional contagion is more likely and faster; Second, behavior communication. When people's mood fluctuates greatly, with the continuous expansion of mood, their behavior will continue to increase, thus further stimulating people's mood.
In reality, many unexplained financial psychological and behavioral problems can be explained by psychological theory, and many financial hot issues and financial crises are also closely related to psychology.
The decision-making process of investors is the process of investors' investment preference selection, which is closely related to people's cognitive psychology. Behavioral finance uses cognitive psychology to study cognitive biases and cognitive goals, explain related financial problems, and establish corresponding theoretical models.
In terms of cognitive style, rational economic man assumes that he can obtain complete information, analyze it and then make his own decision. In fact, investors can't get all the information, and it's impossible to analyze all the information and deal with complicated judgments. Psychological research shows that people often use heuristic reasoning in the decision-making process, that is, a very simple method is used to simplify complex problems and form a single decision-making process, which mainly includes representation method, usability method and adjustment method. The law of representation means that people will directly infer the result by grasping a feature of the problem without considering the true probability of this function and other related reasons and characteristics. In many cases, the expression of laws can help people infer the essence of the problem quickly, but sometimes it will cause serious deviation, especially the basic elements of events will be ignored, that is, unconditional probability and sample size. Rabin called it the decimal theorem. The availability rule means that in most cases, people only determine the possibility of this event according to their own information on this issue, including the amount and difficulty of information memory, rather than seeking other relevant information. Kahnemann and Tversky studied the possibility of speed evaluation, an example of thinking association, and found that this method has serious memory bias and search preference, because when people look for relevant information in their minds, not all the information is unbiased, and search can find relevant information. Adjustment law means that people usually use reference points and anchor points to reduce ambiguity under uncertain circumstances, and then adjust the final conclusion through certain adjustments. Slovic and Lichtenstein believe that no matter whether the initial value comes from hidden problems or rough calculation results, the later adjustment is usually insufficient, and different initial values will produce different results. The wheel of fortune experiment described by Kahnemann and Tversky clearly shows this tendency, and people are bound by too many meaningless initial values.
The cognitive characteristics of typical investors can be used to explain the excessive fluctuation of stock prices. Typical cognition makes investors think that the fluctuation of the average growth rate of cash dividends is greater than reality. After seeing the growth (decline) of cash dividends, they will soon believe that the average growth rate of cash dividends will increase (decrease), and the corresponding buying (selling) behavior will push the stock price up (down), which is incompatible with the level of cash dividends.
Psychological research has found that people will have a confirmation bias, that is, once people form transcendental beliefs, they can help confirm previous beliefs and consciously look for various evidences. Hindsight prejudice is trying to find all kinds of real evidence to prove that one's beliefs are correct. This misunderstanding of confirmation makes it easier for investors to stick to the wrong trading strategy, which leads to the persistent pricing deviation of financial products until very strong evidence seems to force them to change their original beliefs.
Psychological research also found that people will have a behavior-induced attitude change. If the action fails, people will revise their beliefs downward and artificially reduce the regret caused by the loss, which is also a manifestation of self-comfort; If the operation is successful, people will revise their beliefs upwards and show their wise decisions. Arkes and Blumer believe that this cognitive bias can be used to explain the investment behavior of sunk cost effect.
The influence of cognitive psychology on behavioral finance is the most important prospect theory in behavioral finance. This theory describes three key psychological characteristics of people's decision-making in uncertain situations: first, in addition to paying attention to the ultimate wealth level, people also care about the profit and loss; Second, people hate the possible risks in income, but are generally willing to accept the risk of loss; Third, people's disgust is vague, and it will be given corresponding weight according to the probability of occurrence, resulting in the result of deterministic effect. Prospect theory is of great significance in describing behavior preference.
Taylor and Johnson put forward the problem of mental account based on the prospect theory, that is, the consideration of decision-making is from the perspective that completely rational people fully consider various results and comprehensively calculate their own gains and losses. But in fact, people usually break down the problem into some relatively simple habits and units, and keep and follow up the profit and loss situation in their minds relatively independently, so people will be more influenced by their own psychological feelings. This way of thinking is psychological account.
Barberis, Huang and Santos extended the research and analysis of prospect theory to the general equilibrium dividend pricing model. The model shows that the good news of cash flow will push up the stock price, improve the investor's early rate of return, and the investor's loss risk may be smaller, so it will be discounted at a lower discount rate of future cash flow, thus promoting the stock price by going up one flight of stairs; On the other hand, a bad news will cause the stock price to fall, causing investors to suffer initial losses, and investors' aversion to losses will become even greater. Therefore, a higher discount rate will be adopted to discount the future cash flow and guide the stock price to a lower level.
Psychological research shows that people's blind self-confidence, conservatism, loss aversion and other psychological characteristics directly affect people's investment behavior. Overconfidence comes from optimism. The study found that in many aspects, most people are too optimistic about their abilities and future prospects. For example, driving level, sense of humor in getting along with people, etc. According to a survey, 90% of the respondents said that their ability was above average. At the same time, due to attribution bias's self-reinforcement, people often attribute the good results to their own abilities, and the bad results to the bad external environment. Therefore, it is difficult for people to change their ideas through rational continuous learning, thus making people overconfident. Conservatism means that most people's thinking is an inertia, and it is very difficult to change their original beliefs. The modification of personal new information is often not enough to change their original ideas. Averting loss, that is, avoiding subjective or ambiguous uncertainty, is far better than rejecting objective uncertainty. Heath and Tversky's research shows that people's aversion to uncertainty is negatively related to their subjective ability to estimate the probability of uncertainty. In addition, the research of Fox and Tversky believes that the experience of making mistakes or the influence of more capable decision makers will make people more disgusted with uncertainty.
Psychology has found that people will have a strong sense of regret after making mistakes, which may bring more pain to people than the original mistakes. Therefore, in people's financial behavior decision-making, they often try to avoid the sense of regret that may arise in the future, that is, the goal of decision-making can be regarded as obtaining the minimum regret value. This theory explains the problem of ignoring regret bias. People are used to fully estimating the possible situations and feelings in the future before making a decision, and the degree of regret for taking action will be much higher than that for not taking action. For example, there are two options before people, one is a loss of $7,500, and the other is a loss of 10000, or there may be no loss. The study found that most people would choose the latter, which is an aversion to loss.
Affected by these emotional factors, people's investment decisions have deviated from the basic assumption of rational economic man, which is helpful to explain the financial problems that were not easy to explain. For example, there is so-called excessive trading in investment. Investor day trading, but the income is far from enough to compensate the transaction cost. A study by Barber and Odean shows that the average profit of investors who trade the most is usually the least. Obviously, rational economic men should not over-trade. However, because people are often blind and confident, they firmly believe that the information they have obtained is enough to make them get considerable returns in sales, but in fact, these so-called information does not mean to make profits from investment, which leads to the proliferation of transactions.
People's fuzziness and loss aversion can be used to explain the financial problems of equity premium. Because investors can't accurately grasp the distribution of stock returns, when faced with great uncertainty, they would rather make the worst estimation and choice. Maenhout believes that if investors are worried that they are based on the wrong stock return estimation model, they will demand a higher equity premium to compensate for the realistic cognitive fuzzy probability distribution. The model studies of Barberis, Huang and Santos show that the change of loss aversion will lead to sharp fluctuations in stock prices. Loss aversion makes investors unwilling to see the stock market fall, so they will demand more premiums to offset high-risk securities.